The popularity of the Internet has made it a productive advertising medium. The online advertising market has continued to grow in recent years, fueled in large measure by paid search advertising. In paid search advertising models, advertisers pay for placement of their advertisements within or alongside search results that are generated by search engines in response to queries received over the Internet. This type of advertising has become attractive to advertisers at least because it can be targeted to potential consumers having sufficient interest to submit related queries. In addition, paid search advertising allows advertisers to pay based on quantifiable actions elicited by advertisements. That is, the costs of an advertisement are directly related to a measured quantity of actions elicited by the advertisement.
One popular form of paid search advertising allows advertisers to pay for each “click” (i.e., a click of a mouse) elicited by advertisements. This form of paid search advertising is commonly referred to as pay-per-click (“PPC”) or cost-per-click (“CPC”) advertising. In PPC advertising, advertisers submit bids to a search engine for placement of advertisements within search results. Accordingly, the placement of the advertisements within search results generated by the search engine is based, at least in part, on the bids, with higher bids generally winning preferential placement within the search results. Such bid-based placement techniques often encourage competing advertisers to drive up advertising costs, thereby increasing the revenues collected by the search engine.
When a potential consumer submits a query to the search engine, the search engine responds by providing search results containing PPC advertisements. If the potential consumer selects (e.g., clicks on) one of the PPC advertisements, the search engine will direct the potential consumer to a site hosted by the corresponding advertiser and charge the advertiser an agreed-upon cost-per-click amount. In theory, PPC advertising provides a result-based advertising technique in which advertisers pay for actual interest shown in advertisements, with the interest being measured in terms of the number of clicks on advertisements.
Search engine affiliates also use PPC advertising for revenue. An affiliate may operate a site and team with a search engine to have PPC advertisements published by the search engine posted on the affiliate site. When a potential consumer visits an affiliate site and selects one of the PPC advertisements delivered to the affiliate site by the search engine, the potential consumer is directed to a site hosted by the advertiser associated with the selected advertisement. The search engine charges the advertiser for the click and shares the proceeds from the click with the affiliate that generated the click.
Unfortunately, conventional PPC advertising models have a number of shortcomings, including vulnerability to fraud and manipulation, as well as inherent conflicts of interest. One significant threat to PPC advertising is commonly referred to as “click fraud.” Click fraud occurs when a person or automated process exploits PPC advertising models by clicking on a PPC advertisement with no intent to do business with the corresponding advertiser.
There are two predominant types of click fraud—competitive click fraud and affiliate click fraud. Competitive click fraud occurs when an advertiser clicks on a competitor's PPC advertisement in order to drive up and waste the competitor's advertising dollars on unproductive clicks. Affiliate click fraud occurs when a person or machine associated with an affiliate site clicks on PPC advertisements on the affiliate site in order to increase revenue. Both forms of click fraud increase advertising costs without providing any value to advertisers.
Affiliate click fraud reduces publisher revenues by allocating advertising proceeds to illegitimate or at least unproductive, affiliates that generate unproductive clicks. Competitive click fraud can increase publisher revenue in the short term, but potentially decrease publisher revenue in the long term as advertisers who realize artificially inflated customer acquisition costs may decide to spend their advertising dollars elsewhere.
Regardless of the type of click fraud or the motives behind it, click fraud has become a significant problem for advertisers, search engines, and legitimate affiliates. Perpetrators have come up with schemes that make fraudulent clicks difficult to identify. Computer programs commonly referred to as “hitbots” have been developed to repeatedly click on PPC advertisements. Some hitbots are highly sophisticated. For example, hitbots exist that are able to change or mask the Internet Protocol (“IP”) addresses associated with computers producing the clicks. Other hitbots are able to hijack and control computers connected to the Internet and use the hijacked computers to produce clicks, often with the operators of the hijacked computers being unaware. Perpetrators have also been known to develop teams of people who are paid to click on PPC advertisements. “Click farms,” as these teams are commonly called, have sprouted up throughout the world to make money simply for producing fraudulent clicks on PPC advertisements.
Search engines and other publishers of PPC advertisements have attempted to combat click fraud. Electronic filters and human teams have been employed to identify click patterns that might be representative of click fraud. However, such forms of policing cannot identify all fraudulent clicks. Moreover, the policing efforts are expensive, especially when compared with the financial incentives to generate fraudulent clicks and the relative ease and low-cost with which fraudulent clicks can be generated.
Another problem that click fraud introduces into PPC advertising is an inherent conflict of interest for search engines. On one hand, search engines have an interest in policing and stopping click fraud to keep advertisers satisfied. On the other hand, however, successfully identifying click fraud and issuing refunds to advertisers decreases search engine revenues. Therefore, while search engines are in a natural position to police click fraud, the search engines may to a certain extent lack motivation to identify and stop all fraudulent clicks because doing so would decrease revenues.
Clearly, conventional PPC advertising models are easy to manipulate and difficult to police. Incredulous persons and entities have been and will most likely continue to manipulate PPC advertising. Consequently, conventional PPC advertising models can inflate advertiser costs without any increase in returns.
Moreover, conventional PPC advertising models result in lower revenues for search engines and legitimate affiliates as they are forced to share advertising revenues with illegitimate affiliates perpetrating click fraud.
Another form of paid search advertising has been viewed as a potential remedy to click fraud. This form of advertising is commonly referred to pay-per-action (“PPA”) or cost-per-action (“CPA”) advertising. In PPA advertising, advertisers are charged when consumers both click on PPA advertisements and complete another specified action. The action may be agreed upon in advance by an advertiser and a search engine publisher and may include actions such as a consumer submitting an order, making a purchase, or completing a registration.
While advertisers may find PPA advertising attractive because they would no longer be charged for unproductive clicks, search engine publishers may be reluctant to employ PPA advertising because it may decrease revenues and because of the ease with which advertisers could manipulate results. Under conventional PPA advertising models, the results reported by advertisers directly increase or decrease the payments made by the advertisers, which models create a financial incentive to underreport results. Because accounting efforts would shift to the advertisers, PPA advertising models effectively put advertisers on their honor to accurately report every action elicited by advertisements. Search engine publishers would almost certainly insist on policing advertisers to ensure that all billable actions are accurately reported. This would require burdensome and expensive policing of the advertisers. Despite the shortcomings of conventional PPC advertising, search engine publishers are unlikely to adopt a PPA system as it requires that publishers police advertisers and incoming revenue and further requires (100) % participation by advertisers on all sessions and transactions.
In sum, conventional paid search advertising models are easy to manipulate and require substantial and expensive policing efforts to maintain satisfaction among all parties involved. Click fraud has become a serious threat to the existing PPC advertisement models. PPA advertisement models might theoretically help combat click fraud. As described above, however, PPA advertisement models include a number of shortcomings that may render such models impractical. Accordingly, the state-of-the-art does not include a practical and viable paid search advertisement technology capable of overcoming problems associated with click fraud.